The European Commission has concluded that Bulgarian plans to allocate €945 million worth carbon emission trading allowances free of charge to modernise the electricity sector are in line with EU state aid rules. The Commission found that the funds will be used for modernising production infrastructure, diversifying the energy mix or constructing new installations. This will contribute to opening up energy markets, reducing greenhouse gas emissions and increasing the security of supply, in line with EU objectives, without unduly distorting competition in the internal market.

Joaquín Almunia, Commission Vice-President in charge of competition policy noted: “The investments will allow Bulgaria to diversify its sources for the production of electricity and to contribute to the expansion of national energy markets. At the same time the measure contributes to reaching Europe's 2020 objectives by reducing greenhouse gas emissions.”

The market value of the free emission allowances under the Bulgarian plan is €945 million. The projects to be supported with the free allowances were chosen in an open call for projects, on the basis of objective, transparent and common criteria. All eligible projects submitted by operators were included in the Bulgarian plan (401 investments). The operators that do not use (all) free allowances shall transfer the counter value of unused allowances to a special fund, from which investments for improving the infrastructure (transmission, distribution grids for gas and electricity) and for clean technologies will be financed. The national plan foresees the closure of some low efficient coal fuelled thermal plants, the increase of lower emitting natural gas and renewable energy production and a more varied energy mix.

The 2011 market share of the electricity incumbent BEH (Bulgarian Energy Holding) is around 59.6% and is not expected to grow as a result of the plan. In fact it is forecasted to decrease to 52.8% by 2020. This will allow new participants to enter the market, mainly in the field of renewables. Moreover, the implementation of the national plan has a limited impact on the market position of BEH as only a part (25%) of its capacity stems from coal based generation assets eligible for free allowances. In addition, most of the free allowances allocated to BEH are used outside the power generating sector for improving grid regulating conditions and enhancing the security of supply in the electricity power system and the gas network. The implementation of the plan is therefore not expected to lead to further market concentration.

The Commission has therefore concluded that the measure was in line with Article 107(3)(c) of the treaty on the functioning of the European Union (TFEU), that allows aid for the development of certain economic activities provided it does not adversely affect trading conditions, and the Commission's Emission Trading System (ETS) Guidelines.

Background

Article 10c of the EU Emission Trading Directive (Directive 2003/87/EC as amended by Directive 2009/29/EC) allows certain Member States to allocate carbon emission allowances free of charge, provided that they use the funds to modernise their energy system, for example by upgrading the infrastructure, introducing clean technologies and diversifying their energy mix.

Bulgaria presented its national investment plan in September 2011. In July 2012, the Commission had already found that carbon allowances granted by Bulgaria were in line with the requirements of the EU Emission Trading System (ETS) Directive (see decision C(2012) 4564 final). Today's decision complements this by finding that the public financing measures included in the plan do not distort competition in the Internal Market.

In June and in December 2012, the Commission had already approved similar measures for Cyprus (case SA.34250), Estonia (case SA.33449), Romania (case SA.34753), Czech Republic (case SA.33537) and Hungary (case SA.34086).